Pessimism virus infects Rockhopper - great for a Contrarian!

I have been thinking about my Rockhopper (RKH) investment quite a bit recently as the share price continues its rapid decent following the 14/10-3 well result. Following the euphoria of Rockhopper's Sea Lion discovery on May 6th, 2010 not much has gone right for the Falkland Island oil explorers. Desire Petroleum exemplified the issues with wild oscillations in its share price, which inevitably lost most private investors money, and culminating in the disastrous Rachel North 14/15-2 well which was announced as an oil discovery on December 3rd 2010 and then 3 days later, news came it was actually water.

Its easy to fall in love with a share and when it comes to the Falkland Island explorers I do not fall into this camp. I generally have a massive degree of scepticism. Though I was lucky enough to benefit from Rockhopper's Sea Lion discovery, I manage my investments in the Falkland Islands oil explorers on fundamentals not on luck.

So looking at Rockhopper you have to reexamine the facts to be sure that your investment is not just a speculative no hoper.

Rockhopper has:

• 170 million barrels of oil confirmed reserves following a CPR at Sea Lion (14/10-2) which is commercial on a standalone basis
• Current market capitalisation of £700 million underpinned by Sea Lion find
• Around £200 million in cash for at at least 6 further wells in the North Falkland basin
• Live oil shows found 8km from Sea Lion with 14/10-3 well (though non commercial on a stand alone basis). The well encountered good quality reservoir; hydrocarbons were present; and the sands were charged. (see FT.com note below)
• Given the proximity of the next well 14/10-4 (2 km from Sea Lion) high probability of success
• Full programme of 3D seismics due by second half 2011

At the end of last week Sam Moody was pitching the story to the City, particularly the prospects for the next well (14/10-4) which is due to spud next week. It seems things went well, probably because the facts speak for themselves. The froth has left the Falkland Island oil shares and excessive pessimism is the watch word for now. Rockhopper is still risky and a lot rides on the next well but the probability of success looks enticing and Moody is almost laying his reputation on the line with the comments he was using last week. Though I was not at the meeting, I have a good source and he was impressed with the story, lets hope the market is next week!

Note:
Correction: Rockhopper Sea Lion discovery

Published: February 14 2011 04:47 | Last updated: February 14 2011 04:47

http://www.ft.com/cms/s/0/545dbce6-37e6-11e0-b91a-00144feabdc0.html#ixzz1EXNa0TZT
Saturday’s FT incorrectly stated that Rockhopper’s Sea Lion discovery was uncommercial on a stand-alone basis. Instead Rockhopper’s announcement on Friday referred to a recently drilled exploration well, 14/10-3, which it considered to be uncommercial on a stand-alone basis, despite encountering live oil.

No news again for Contrarian Investor UK portfolio, but tomorrow's another day!

Not one interesting RNS to get my teeth stuck into today for the Contrarian Investor UK portfolio. Surprisingly for a Falklands Islands oil share, even Rockhopper (RKH), seems to be keeping a firm lid on any rumours on the outcome of its latest drill, be they good or bad. Chief Executive, Sam Moody, Chief Executive, at Rockhopper seems to be keeping a tight ship compared with the likes of Desire Petroleum (DES) where we saw 30%+ swings in the share price on leaks, some more accurate than others. Nothing like that with RKH, a few pence here and there but nothing to write home about.

The FTSE 100 retreated 17 points to finish at 5,983 despite some good news from the U.K. service sector in January (services now represent 75% of the U.K. economy) which seemed to indicate that a double dip recession was unlikely due a further economic contraction in Q1 this year.

Shell dropped 3.3% over disappointment that its $18.6 billion profit in 2010 versus $9.8 billion in 2009 was not even higher due to some refinery output issues. Also analysts were expecting a dividend rise which didn't materialise.  At the other end of the spectrum, Glaxo Smithkline (GSK) rose 3.6% to £11.68 as it announced a £2 billion share buy back and an increase in its dividend of 7% to 65p. Sales for the year to 31 December was down to £28.4bn a 1% decline from the previous year, with its main pharmaceuticals business seeing sales drop 11% due to generic competition for some of its key drugs. Pre-tax profits were down to £4.5bn from £8.7bn.